A recent Office of Fair Trading inquiry into credit card charges has concluded that the industry levies unlawful penalty charges of over £300 million a year, and has given firms until the end of May to address the situation or face legal action. The report suggests that the same principle applies to bank overdrafts, store cards and mortgage default payments, and they have said that they will be ensuring these products also comply, as they believe that default charges over £12 are excessive and unfair, and charges should only be used to recover costs such as postage, stationary, staff and technology systems.
Our view
It is good news that pressure is mounting on providers to alter their stance, however we also believe that if a client defaults on a debt i.e. they owe money why should they not have to pay more? Higher late payment penalties do act as a deterent.